On 7 November 2014, ESMA published a call for evidence on the operation of the “passport” available to AIFMs under the Alternative Investment Fund Managers Directive and on the experience of marketing under the AIFMD by non-EEA AIFMs. This will inform the opinion/advice ESMA needs to issue by 22 July 2015 – specifically:
- an opinion on the functioning of the passport for EEA AIFMs and on the functioning of the national private placement regimes (NPPR); and
- an advice on the application of the passport to non-EEA AIFMs and AIFs.
If ESMA issues a positive advice and opinion, the European Commission will then have three months to adopt a delegated act specifying when the passport option would be extended in respect of: (i) the marketing of non-EEA AIFs managed by EEA AIFMs; and (ii) the management and/or marketing of AIFs by non-EEA AIFMs in the EEA. In order to issue a positive advice, under Article 67 AIFMD, ESMA must be convinced that “no significant obstacles regarding investor protection, market disruption, competition and the monitoring of systemic risk” impede the application of the passport, in the circumstances in (i) and (ii).
The call for evidence expands on these Article 67 concepts, with investor protection assessed relative to the degree of co-operation between EEA and non-EEA authorities, and systemic risk monitoring assessed by demonstrating evidence of adequate surveillance of systemic risk in the relevant non-EEA country, and existence of co-operation between EEA and non-EEA regulatory authorities in monitoring systemic risk.
If the passport is extended, it can only be used where the AIFM is in compliance with the full scope of the AIFMD. For non-EEA AIFMs, this would mean needing to be fully authorised in an EEA Member State of reference – and so being subject to the same requirements applicable to an EEA AIFM authorised in that same Member State. Further, non-EEA AIFMs would also be required to appoint a legal representative in their home Member State of reference.
The process under the AIFMD for the extension of the passport interacts with the eventual termination of NPPR in 2018 (or later): Unless and until the first step of extending the passport in respect of the circumstances in (i) and (ii) occurs, the mandatory termination of NPPR cannot happen. However, there is no prohibition on individual Member States that currently offer NPPR from discontinuing those regimes at any point before the mandatory termination of all NPPR.
With respect to passporting, ESMA has focussed on high-level questions as to the issues and difficulties that AIFMs have experienced, though ESMA has not specifically addressed one of the more pertinent problems faced by smaller managers operating under the passport – namely, that local regulators can and do charge greatly varying authorisation and fund registration fees.
Within the analysis of NPPR, while ESMA has focussed questions about the costs and benefits of marketing under NPPR, ESMA is also considering whether marketing under NPPR has a long-term future – hence, its questions regarding whether NPPR has been so demanding that AIFMs have decided to exit a particular jurisdiction or no longer consider NPPR a valid route to market.
Given that the call for evidence represents an opportunity for AIFMs to highlight discrepancies in the operation of the passporting processes among EEA Member States, as well as to shape the operation of NPPR until 2018, we would urge AIFMs to respond to ESMA, and would be pleased to make a submission on their behalf. Responses are due to ESMA by 8 January 2015.